Estate planning and flossing are often compared. Should you do it? Yes. Will it be ok if you skip today? Probably ok for now, but eventually additional time and money will likely be spent as a consequence of procrastination.

In this article we outline estate planning - what it is, why it is important, what it entails, and how it is done.

What Is Estate Planning?

Estate planning is setting up a framework for directing your affairs and assets after you have either become incapacitated or passed away. You are trying to ensure that:

Your wishes are honored (assets, healthcare decisions, legacy)
Your children/dependents are cared for by designated people
Your estate avoids the probate process to preserve privacy and minimize legal fees
Estate taxes (if any) are minimized.

When Does Estate Planning Become Particularly Important?

If you are a single person without real estate assets, you could complete a few basic estate planning steps and likely be in an OK shape. Purchasing your home or a rental property, having children, and accumulating assets over the Federal or State estate tax exemption threshold are some of the main triggers for addressing estate planning more thoroughly.

What Does Estate Planning Entail?

The complexity of your situation (family structure, net worth, intricacy of wishes) determines how convoluted the process will be.

There are a range of options for dealing with your estate planning tasks. Some of the basic steps do not require involving an attorney or utilizing specialty software, and completing just those steps could be incredibly impactful. Further down the page we address a few differences between attorneys and DIY options.

Basic Steps:

Making sure that beneficiaries for retirement accounts and life insurance policies are up to date. Most often you can view and update beneficiaries in your online account.
Setting up transfer- or payable-on-death (TOD or POD) designations for bank and investment accounts. This sometimes requires a trip to the bank, but often can be done online. This is similar to a beneficiary on a retirement account.
Executing a Healthcare Directive (aka Living Will) that is specific to your state; some states require notarization, and some are ok with just witnesses. This document would communicate your healthcare wishes and designate a decision maker for when you are unable to advocate for yourself.
Executing a Will that dictates who inherits which assets.
Setting up guardianship for your dependents to prevent the court from deciding who would take care of them.
Executing a Power of Attorney would allow a designated person to direct your affairs if you are unable to due to incapacitation.

Gold Standard Steps:

Setting up and funding a Revocable Living Trust in order to avoid probate and space out distribution of assets.
Dealing with Beyond the Estate Plan items.

And for those who expect their assets to exceed Federal or State estate tax exemption:

Working with an estate planning attorney to set up a more advanced plan for minimization of estate and income taxes. For 2024, the Federal and California exemption is $13.61 million per person. That exemption is expected to drop down to roughly $6 million in 2026.

What Is Probate?

Probate is a legal process in which the court distributes your assets according to your wishes (if a Will is in place) or in accordance with the law. Every state has a probate threshold - once your probate assets exceed that threshold, your estate will have to go through probate. Probate thresholds are set by States. If you are in California, the 2024 probate threshold is $184,500 in probate assets.

Probate is expensive, slow, and the records become public information. Probate can also force grieving family members into a court battle over assets and guardianship. One of the main goals of estate planning is to avoid probate.

It’s worth highlighting that having a will does not help you to avoid probate. The will simply relays your wishes to the court.

What Are Probate and Non-Probate Assets?

Real estate, bank and investment accounts without TOD/POD designations, cars, personal property are the most common probate assets. Transferring those into a Living Trust is a common way to avoid probate, especially when it comes to real estate (a common probate trigger).

Life insurance proceeds, retirement accounts, and TOD/POD-designated bank/investment accounts would be distributed according to the designated beneficiaries without going through probate. These are non-probate assets, and they do not count towards the probate threshold.

What Is a Revocable Living Trust and Who Needs It?

A revocable living trust is a legal document that creates a trust that “owns” your property while you maintain full control over all of it. You are the grantor of the trust, and usually you also are designated as the trustee of the trust while you are alive and capable. A revocable trust can be changed by the grantor at any time.

Once the grantor is no longer either alive or capable, a designated successor trustee steps in to manage assets of the trust. When the grantor dies, the trust becomes irrevocable. It is not easy and sometimes impossible to change an irrevocable trust.

Having a minor child is a common reason for establishing and funding a revocable living trust. Many parents wouldn’t want their kids to inherit the entire estate at minimum legal age, and a trust allows you to specify at what point what assets would be distributed.

Another common reason is owning real estate, since its value is likely to push your estate over the probate threshold. If probate assets are held by the trust, the estate avoids probate and assets get distributed according to the trust provisions.

Once I Deal with Estate Planning, Am I Done Forever?

Estate planning attorneys recommend a check-in every 3-5 years. Alternatively, life events and asset changes can be used as triggers for potential updates to your estate planning documents and elections. Here are some examples:

Changes in marital status or dependents
Buying another home, rental, or investment property
Changes in designated people for guardianships, powers of attorney, or trustee designations
Total assets figure expected to approach estate tax exemption thresholds.

Where Do I Start?

A common first step is having a discussion with yourself or your partner about what you would like to happen in an event of incapacitation or death. If there is a partner, what if both of you were to pass away at the same time? Who should make which decisions? Who should inherit which assets and in which proportions?

After that conversation, you can refer to the above list of steps and try to assess how much help you would need: working with an attorney, using a premium online service, or choosing a more basic path.

If there are no minor children and no real estate, setting up a revocable living trust is frequently postponed, as long as the value of probate assets does not exceed the probate threshold of the state.

What Are the Differences between Using an Attorney, Premium Online Services, and More Basic Solutions?

If you have a complex family situation, intricate wishes, assets over certain levels, or you are short on time, using an estate planning attorney is likely to be the optimal path.

For the more straightforward scenarios, the primary differences between the three routes are:

- Cost v. amount of your time

- Ability to speak to an attorney (knowledge, guidance, assurance, ongoing resource)

- Assistance with transferring real estate into the trust

Regardless of the route you take, you will still likely need to deal with some of the tasks yourself (checking beneficiaries for retirement accounts, transferring non-real-estate assets into the trust, and setting up TOD/PODs designations, if applicable).

Estate planning with an attorney usually includes consultations, creation of all the legal forms, arranged notarizations, and assistance with transferring real estate into the trust. It is common to be asked to fill out a questionnaire, but otherwise most steps are taken care of for you.

A premium online service like Trust & Will could be a great option for relatively straightforward situations. The interface is easy and pleasant to use, but speaking to an actual attorney usually comes at an extra cost. After filling out an online questionnaire, the service creates customized legal forms. You then arrange notarizations and deal with transferring assets into the trust, if needed. Any assistance with real estate transfers is likely to be minimal. The cost would be lower than working with an attorney, but higher than the price tag of the more basic services.

There more basic solutions like RocketLawyerⓇ or QuickenⓇ WillMaker and Trust could be fitting for simple forms and very straightforward situations.

Consider double checking your employee benefits, as group legal plans could be of great value for estate planning.

Dealing with estate planning is rarely something one looks forward to, but it is a meaningful way of expressing care for your loved ones. Your financial planner is likely to be an excellent resource for both getting started and nudging you as you go through the estate planning tasks list.